25.06.202016:41 Forex Analysis & Reviews: Oil market continues to decline: cost of raw materials rapidly declines

Exchange Rates 25.06.2020 analysis

The cost of crude oil began to decline rapidly this morning. This is due to the increasing number of newly reported cases of coronavirus in the world. In addition, the news about the growth of raw material reserves in the United States of America seriously pressed the black gold market. The rise has been happening for the third week in a row, which cannot but upset not only analysts but also market participants.

Investors are extremely worried about what is happening in some US states. A record-high number of coronavirus infections is once again recorded in California, Florida, and Texas. This suggests that the removal of previously imposed quarantine restrictions was too premature, and it is likely that they will return again. If this happens, the demand for crude oil will again seriously shake. Of course, such prospects do not please market participants at all, who are already tuned to strengthen the position of black gold.

In addition to this, a huge number of new cases of COVID-19 are observed in Latin America, as well as in China, which has already suffered greatly from the first wave of the pandemic. It is likely that the second wave can overwhelm again, if not the whole world, then some strategically important territories, which means that it will be necessary to return quarantine measures from which the world economy has already seriously suffered. Restrictions will lead to the fact that the demand for raw materials will fall dramatically, and the reserves of crude oil will become so large that they can not fit into oil storage facilities. This will be another collapse in the oil market.

The statistics published by the United States Department of Energy adds to this entire negativity. As it became known yesterday, crude oil reserves in the state increased by 1.4 million barrels. This has been evidence of an increase for the past three weeks in a row. In addition, real data did not coincide with preliminary forecasts of analysts who expected a reduction of about 100 thousand barrels.

On the contrary, the stocks of raw materials at the strategically important storage area in Cushing decreased by 1 million barrels, which reassured investors a little. But at the same time, the extraction of crude oil increased by 500 thousand barrels per day and has already reached 11 million barrels per day.

Gasoline inventories in the United States decreased by 1.7 million barrels, which also turned out to be lower than the experts forecasted level. According to preliminary data, fuel reserves should have decreased by 1.9 million barrels. Distillate stocks rose by 249 thousand barrels, although previously it was said about an increase of no more than 100 thousand barrels.

In general, analysts' forecasts once again did not coincide with reality, which turned out to be slightly worse than the expected result. This, of course, afflicted investors who thought about how events would develop in the market in the future. There was an assumption that the positive dynamics of oil, noted recently, came to an end and a new stage began, associated with a serious drop. If this is true, in the near future, black gold may lose all the advantages that it managed to achieve.

This morning, the price of futures for Brent crude oil for delivery in August at a trading floor in London has already fallen to 0.89% or 0.36 dollars. Its current level is consolidating so far in the region of 39.95 dollars per barrel. Thus, it is clear that oil again fell below the extremely important mark of $ 40 per barrel. It is she who allows the raw materials to push off in order to grow taller. Recall that yesterday's trading also ended in a catastrophic decline (immediately by 5.4% or 2.32 dollars), which sent Brent to the level of 40.31 dollars per barrel.

Also, the price of futures contracts for WTI light crude oil for delivery in August in electronic trading in New York fell by 0.76%, or 0.29 dollars, which sent it to the mark of 37.72 dollars per barrel. Yesterday's trading also showed its decline (by 5.9% or 2.36 dollars) and completed its trading day WTI in the region of 38.01 dollars per barrel.

If we take into account all the news that the participants in the oil market are playing, it is more than likely that there will be a further negative correction in the cost of raw materials. This means that sales will continue.

Today, investors' eyes will be focused on statistics on US economic growth. So, it is expected to publish data on the country's GDP. If the statistics turn out to be positive, the greenback will strengthen, and a new pressure factor will appear on the oil market.

Maria Shablon,
Chuyên gia phân tích của InstaForex
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